IDFC: Twin benefits

Besides immediate profit, the stake sale in asset management company will ensure access to global investors.

IDFC’s 25 per cent stake sale in IDFC Asset Management to Natixis for Rs 300 crore values the asset management company (AMC) at Rs 1,200 crore, or six per cent of the assets under management (AUM). In March 2008, IDFC bought the AMC for Rs 820 crore (5.8 per cent of AUM) from Standard Chartered. For IDFC, the pre-tax profit works out to Rs 95 crore.

Analysts have welcomed the deal, especially the valuation, which is higher than in the recent deals (three-four per cent of AUM). IDFC may have been able to command the premium valuation because it managed to increase assets by 43 per cent between March 2008 and September 2010.

Besides the immediate profit, Natixis will open access to global investors for IDFC. Natixis is one of the 15 largest asset managers in the world in terms of assets and managed about $719 billion as of September. IDFC AMC will be able to use Natixis’s distribution network to raise funds abroad for investing in India.

In the core business, while liquidity crunch poses a potential threat to margins of the entire financial sector, IDFC is relatively better positioned than banks, given the comfort on the asset-liability profile and its ‘infrastructure finance company’ status that gives it the benefit of cheaper funds and the identity of being a specialised player in the robustly growing infrastructure finance space. Analysts have upgraded the stock and expect a 22 per cent return over a year.